Market Overview

Analyst Says Sell Spotify As Shares Are Too Expensive Right Now

Share:
Analyst Says Sell Spotify As Shares Are Too Expensive Right Now
Related
Infographic: 10 Years Of Spotify
10 Biggest Price Target Changes For Thursday
Streamers make jumps in wake of Netflix strength (Seeking Alpha)
Related NFLX
YouTube Down For Many Users; @TeamYoutube Says 'Working On Resolving'
7 Stocks Moving In Tuesday's After-Hours Session
Netflix, Inc. (NFLX) CEO Reed Hastings on Q3 2018 Results - Earnings Call Transcript (Seeking Alpha)

Spotify Technology SA (NYSE: SPOT) is the market leader in music streaming with 75 million premium subscribers, but without the same margins as video the stock looks expensive.

The Analyst

Loop Capital Markets analyst Alan Gould initiated coverage of Spotify with a Sell rating and $120 price target.

The Thesis

The music streaming industry grey 41 percent last year and is now the largest revenue component of the recorded music industry, and with Spotify as the leader it only seems natural to compare the company to video-streaming giant Netflix, Inc. (NASDAQ: NFLX).

Unfortunately, that’s where the comparisons seem to end for Gould.

“Spotify is renting a library and Netflix is building one,” the analyst said in a note. Whereas Netflix has its own exclusive content, Spotify’s library is mostly the same as its competition. The result is that Spotify lacks pricing power and its gross margins have lagged that of Netflix. Gould expects that, as the company grows, most of the economics will swing towards the record labels’ favor.

Spotify does stand to benefit from having the largest database of consumer listening data—so long as it can leverage it effectively ahead of the competition. Apple Inc. (NASDAQ: AAPL), Amazon.com, Inc. (NASDAQ: AMZN), and Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) each have their own streaming services backed by huge databases of consumer information and the resources of significantly larger companies.

Gould is also concerned by recent stock selling by Sony Corp (ADR) (NYSE: SNE) and Warner Music. Sony has sold half of its original 5.7 percent stake since Spotify’s direct listing, while Warner has sold 75 percent.

Price Action

Shares of Spotify were trading down about 2.2 percent at $156.39 Tuesday morning.

Related Links:

Cramer: Investors Made 'Particularly Egregious Error' In Selling Spotify

Spotify's First Earnings Report On Wall Street: The Sell-Side Reacts

Latest Ratings for SPOT

DateFirmActionFromTo
Oct 2018RedburnUpgradesBuy
Oct 2018BuckinghamMaintainsBuyBuy
Jul 2018B. Riley FBRMaintainsNeutralNeutral

View More Analyst Ratings for SPOT
View the Latest Analyst Ratings

Posted-In: Alan GouldAnalyst Color Price Target Initiation Top Stories Analyst Ratings Tech Media Best of Benzinga

 

Related Articles (AAPL + AMZN)

View Comments and Join the Discussion!
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Here's Where Legal US Sports Betting Is Coming First

Trade Concerns, Earnings Could Put 8-Day Dow Win Streak in Jeopardy